Game Theory – All in a Game

In Oligopoly, a company’s earning is affected not only by its own action but also by other major producers in the market.  When there are only a few companies dominating the entire market, it is possible to apply Game Theory (per Wikipedia, Game Theory is the study of mathematical models of strategic interaction between rational decision-makers) to determine the best action the company should take to maximize outcome, given the anticipated response from the competitor.

Coke and Pepsi are an example of Oligopoly, where each company work very hard to anticipate competitor response using Game Theory models before taking action.  So Coke and Pepsi are like two players playing a chess game, win and lose is all in a game.